As part of a series of interviews regarding the impacts of COVID-19 on the rental industry, late last year RER interviewed Glenn Leppo, CEO of the Leppo Group Inc., which includes Leppo Rents, Razor Rents, Valco Equipment and multiple Bobcat dealerships. Here Leppo talks about impact on business in 2020, expectations for 2021, why sales and service have fared better than rental, and more.
How has business been for you in 2020?
The answer is OK, but we had much higher expectations as we started strong in January and February.
How has the pandemic affected your business?
It has been a tumultuous year. We had added stores and staff and were growing solidly in all segments of the business - rental, sales, parts and service (in addition to rental we are a dealer for Bobcat, JLG, and several other brands). When the pandemic hit, everything froze for a little while. Construction was considered essential in some states but not others. Customers called off so much equipment from big jobs so fast we couldn't get it all. In Pennsylvania, we had equipment behind locked gates for months - secure, but sitting idle with no way to get it off the jobs.
Sales, parts and service recovered quickly and got back on track within expectations, which was far different from 2008-2009 when sales of new equipment plummeted. Rental demand, on the other hand, has not fully recovered to pre-COVID levels.
How do you expect the pandemic to affect business going forward into 2021?
Short answer – it will hurt 4Q2020, 1Q2021 and likely 2Q2021 as well.
Long answer - It is tough to separate the impact of three different factors that I see negatively impacting at least the first half of 2021.
First is the pandemic itself. If COVID continues to surge as it has in November, I fear the next six to seven months could prove fatal for a lot of people. The vaccines will help as people get them, but that will take until at least 2Q2021 to stabilize the situation. The generally optimistic mood could turn quickly if hospitals get overwhelmed and seemingly minor medical issues turn into crisis situations. As announced on Nov 13, an NPR analysis found at least 18 states have crossed into a dangerous zone where their hospitals could be at risk of reaching capacity, which could eventually require extreme measures like rationing care. As we found earlier in the pandemic, without proper care many more people die.
The second factor is politics. If the government can't find a way to control the virus without shutting down the economy, and continues to struggle with further economic relief, the pandemic will also prove fatal for a lot of businesses that have consumed all their reserves. I believe the rental industry only survived as well as it did in Q2 and Q3 because of the massive government stimulus. Businesses got PPP. Millions of people were getting more money to stay home than they did when they were working. Others were working from home and couldn't travel. These factors together with low interest rates combined to drive a surge in new home construction, remodeling, and upgrades like pools and patios. Absent that stimulus, that one bright spot in the construction market will disappear since non-residential and multi-family housing construction are both down.
The third and final factor is oil prices. Although we intentionally limit the percentage of our rental revenue focused on oil and gas, the near shut down of that industry still hurts us since we don't lay people off.
So, when the virus is controlled at less than 1,000 deaths per day, the government gives the economy a big enough boost to make up for the economic damage, and oil stabilizes above $50 for a while, we will be golden. If none of these happen it will cause significant declines in business. One of three will be a small decrease and two of the three will result in a moderate increase in revenue. My belief is we will get one in Q1 and one in Q2 resulting in an overall flat to slightly positive year.
How has the pandemic affected and changed your company’s ability to meet with customers, go on jobsites and essentially conduct rental business as you always have?
Early in the pandemic nobody would meet face to face and stayed away when delivering equipment. Now, quite honestly, most of our customers ignore mask protocols and all other COVID protections (this is starting to change a little now in Ohio because cases are up sevenfold). They may avoid shaking hands, but otherwise you wouldn't see much difference from a year ago. From our end, that has made it much more difficult to get coworkers to follow the guidelines issued by the state. Ohio now requires masks for both our counter staff and customers.
How have different areas been affected and how do you expect them to be affected going forward -- homeowner business, small contractors, residential construction, non-residential, industrial, petrochemical, oil and gas, power generation, etc.
The homeowner business, small contractors, and single-family residential construction should stay strong in the first half of 2021 with travel restrictions still likely and low interest rates still favoring growth. Those may flatten as people are free to move around and shift to vacations rather than staycations. I think there will be a gradual increase in non-residential private construction as business owners grow more comfortable. Public building construction will suffer unless there are specific stimulus efforts since so many state and local governments are struggling. Barring a war or other major event affecting oil prices, I think it will be a generally upward, but slow crawl out of the hole for oil and gas - inventories are high, demand will slowly return as people become more mobile, and capacity is falling since drilling has nearly stopped.
Have there been any good opportunities that have come out of the pandemic, i.e., more people doing home improvements, work renting to testing centers, etc.?
Single family housing has gotten the biggest boost as people flee their little condos in the city for bigger houses in the suburbs with enough space for virtual learning and work from home without driving each other crazy. Next are home improvements like pools, patios and remodeling as people save money from their staycations.
This is a very uncertain time in the economy in regard to the pandemic and so many job cancelations. Does this uncertainty benefit rental in the sense that contractors would want to avoid capital expenditures on equipment and would therefore rent more?
That is what has happened in past recessions, but we have found sales holding up better than rental this time. I think all the stimulus money that was thrown around made a huge impact.
